Canada’s inflation rate dropped sharply to 2.8% last month, prompting economists to revise their predictions. Doug Porter, Bank of Montreal’s chief economist, said the economy had shown more underlying strength than expected, making a recession in 2023 unlikely.
The Canadian Federation of Independent Business (CFIB) forecasts an economic rebound in the third quarter instead of a mild recession. While a downturn is still possible, dividend investing is a good strategy. The steady, recurring payments can boost overall returns.
If you have patience, Canadian dividend stocks Doman Building Materials (TSX: DBM) and Timbercreek Financial (TSX: TF) can double your investment in the long run. Both stocks trade at less than $8 per share and pay dividends of more than 8%.
Construction recovery underway
Investors usually prefer high payouts, although yield shouldn’t be the only consideration when picking dividend stocks. The business outlook and earnings growth should take precedence. A company can’t sustain dividend payments without profitability.
Doman Building Materials is a top pick due to the good mid-term and strong long-term outlooks in the construction industry, particularly new residential construction. The $556.97 million company supplies retail and wholesale lumber, building materials and home renovation products in Canada and the United States.
Many projects in new home construction, home renovation, and industrial markets are on hold in 2023 because of rising interest rates and costs. However, normalcy could return when the Bank of Canada and the U.S. Federal Reserve hit their inflation targets. Moreover, interest rate cuts could follow.
The value of new construction in Canada will decrease in 2023, although industry experts expect a recovery by 2025. Also, construction spending for all types of construction projects in North America could reach $401 billion by 2027.
Doman’s chairman of the board, Amar S. Doman, noted the continued activity level and reasonable demand. However, the pricing environment remains highly volatile and impacts on profitability. Still, Doman continues to report income and has not incurred losses in the last four years.
Performance-wise, the stock is one of TSX’s steady performers in 2023. The year-to-date gain is 21.43%. Also, at $6.69 per share, the dividend yield is 8.4%. Given the stock price and dividend yield, your money could double in 8.5 years.
Reliable dividend payer
Timbercreek Financial reported a record net income and comprehensive income of $18.1 million in the first quarter (Q1) of 2023 amid rapidly rising interest rates and lighter transaction activity. The $632.5 million non-bank lender provides shorter-duration structured financing solutions, mainly to commercial real estate investors.
The impressive results were due to strong interest income and a healthy mortgage portfolio. Its chief executive officer, Blair Tamblyn, said, “Generally, the portfolio performed well in the first quarter, reflecting the ongoing focus on high-quality, income-producing assets in urban markets.”
Management expects healthy borrower demand and anticipates higher new funding activity in the coming quarters. More importantly, Timbercreek Financial is a reliable dividend payer. It hasn’t missed paying a monthly dividend since July 2016. If you invest today, the share price is $7.55 per share (+11.02% year to date), while the dividend yield is a juicy 9.13%.
Long investment horizon
Money and patience pay off if you can invest in high-yield Canadian stocks. Doman Building Materials and Timbercreek Financial could double your investment in a long investment horizon.
